The growth of socially responsible investing, via social screens and other indicators of good and bad corporate behavior, has spilled over into broader concerns for ecological sustainability and resilience in the financial profession.
The British investment firm Generation’s recent release of a report called Sustainable Capitalism represents the next step in that progression: the financial profession’s attempt at a vision for how the world needs to change. The document’s drawing attention from both general audience media and industry news sites, some of it praising Generation for its progressive business practices and calling on the world’s financiers to follow suit.
Yet even if Generation’s approach is universally adopted, social relationships and power structures would remain the same for the majority of people in the world today. For most people, this grand vision would amount to a kinder, gentler version of business as usual. In other words, it’s not systemic change at all.
The central message of the report is that the private sector, meaning corporations, banks and investors, will play the leading role in bringing about a reformed global economic system. Companies, investors, governments, nongovernmental organizations, and the media all need to take a longer-term view in their decision-making, reducing or eliminating the short-termism that currently defines the global marketplace. As part of the longer-term view, companies need to consider all costs incurred by their activities, including those to workers, communities, and the environment.
The most useful concept in the report is the “stranded asset,” which loses significant value in the future under a number of plausible environmental and social scenarios. For example, significant climate change would likely bring about extreme weather and/or the establishment of an international carbon price to reduce greenhouse gas emissions. The report cites an estimate of $8 trillion in lost assets – due to increased business costs and/or environmental destruction – under a business-as-usual scenario by 2030. Stranded assets form a powerful idea that should become part of popular economics.
However, the few good ideas in the Generation report don’t add up to a sea change in the world economy.
Most notably, the report contains no means to address persistent economic inequalities in today’s world, including unequal access to basic resources such as food, housing, education and health care. It provides no insight into the social and economic processes by which inequality is generated. We don’t hear about unequal access to various assets, including natural, human and social as well as financial capital, clearly contributes to persistent and extreme economic inequality today.
Nor does the report mention any of today’s bold experiments to reverse that inequality, including the worldwide microfinance movement, the international cooperative movement, and the growth of third-party social and environmental certifications such as the Fair Trade Labelling Organization (FLO) and the Forest Stewardship Council (FSC).
To build a more resilient global economy, changes will undoubtedly have to be made within the private sector of corporations, banks and investors. But those changes are not enough to create an equitable and ecologically responsible economic system. We’ll need to address persistent inequalities by increasing people’s access to natural, human, social and financial capital through both innovative forms of social entrepreneurship and supportive, transparent public policies, to meet the challenges of the 21st century.